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What does product mean in a product liability policy?

In Aspen Insurance UK Limited v Adana Construction Limited [2015] EWCA Civ 176, the Court of Appeal considered the meaning of a "Product" under the terms of a Building Services Combined Liability Policy. The Court of Appeal concluded that a "Product" was a tangible and moveable item, not something which only came into existence to form part of the land, such as a concrete base for a crane.

BACKGROUND FACTS

Adana was a sub-contractor of construction works at King's Dock Mill in Liverpool. Adana carried out construction works including the casting and fixing in place of a reinforced concrete pile cap which was to form a crane base. Adana also supplied dowels (iron rods) which it installed into four reinforced piles to connect the piles to the crane base.

Following completion of the works and erection of a tower crane on the crane base, the crane collapsed and fell. The crane driver was very gravely injured, a number of neighbouring properties were significantly damaged and the crane itself was seriously damaged. Experts concluded that the collapse was due to a failure of the connection between the crane base and the piles, which might arise from a failure of design or workmanship.

THE POLICY

Adana was insured by Aspen under a Building Combined Contractors' Liability Policy which included cover for Public Liability and Product Liability.

Public Liability cover was provided against legal liability for personal injury and damage to property including where "resulting from faulty or inefficient workmanship, materials or design" (save for "making good") but liability arising from any Product was excluded (the "Product Exclusion").

Product Liability cover was provided against legal liability for personal injury and damage to property caused by any Product but liability "arising in connection with the failure of any Product to fulfil its intended function" was excluded.

"Product" was defined as meaning "any product or goods manufactured, constructed, installed… but only after such item has left[Adana's] care, custody or control."

The Policy also contained a foundation clause under which it was agreed that the insurance did not indemnify Adana in respect of "loss of or damage to any superstructure arising from the failure of [Adana's]foundation works to perform their intended function." (The "Foundation Clause").

THE PROCEEDINGS

Aspen sought a declaration of non-liability under the Policy on the basis that the concrete base was a Product; any liability was caused by the Product failing to fulfil its intended function, Aspen was not therefore liable under the Public Liability or Product Liability sections; and, even if there was any liability, it was excluded by the Foundation Clause.

COURT OF APPEAL DECISION

The Court of Appeal decided that liability could not be established against Aspen in respect of damage to the crane itself on the basis that this was excluded under the Foundation Clause. However, the Court of Appeal rejected Aspen's submissions that the concrete base was a Product. Although the Court of Appeal was of the view that the dowels were Products, the expert evidence was that the dowels failed due to Adana's faulty workmanship in not installing them properly.

Product Liability and Public Liability

The Court of Appeal held that the first instance judge had been correct in finding that the concrete base as a whole (including the dowels within it) was not a Product within the definition of the Policy.

A product (with a small "p") can be given a very wide meaning. It could mean anything which is the result of any process of manufacture or construction. The Court regarded the hallmark of a product in this context as being that it was something which, at least originally, was a tangible and moveable item which can be transferred from one person to another and not something which only came into existence to form part of the land on which it was created.

The dowels – Product?

The Court of Appeal considered, unlike the trial judge, that the dowels were Products. The fact that they were incorporated into another object which itself was not a Product (i.e. the concrete base) did not matter. The difficulty for Aspen, however, was that the dowels did not break or fracture but were pulled out intact. If Adana was liable, its liability would not have been caused by the dowels but by its faulty workmanship in not installing them properly, as to which the Public Liability section of the policy provided cover.

It was not necessary for the Court of Appeal to decide whether any liability of Adana arose in connection with the failure of a Product to fulfil its intended purpose. The Court however observed that it was not apparent that they failed to fulfil their own intended function. What appeared to have happened was that the holes in which they were placed were too shallow and too narrow, a failure of workmanship.

The Foundation Clause

The Court of Appeal found that the Foundation Clause did apply. The term "superstructure" was not limited to buildings above the ground. The clause was expressed in general terms to apply to loss of "any" superstructure. If it was intended to have connoted only a building above the ground then it would have been very easy for it say so.

The right approach?

Notwithstanding its decision, the Court of Appeal shared the judge's scepticism as to the appropriateness of making any negative declaration in advance of a trial of liability or statement of assumed facts. Lady Justice Gloster expressed grave reservations as to whether it was appropriate to determine the coverage issues on the basis that, necessarily, many of the facts were assumed or uncertain.

Costs issues

In a subsequent costs judgment, the Court of Appeal awarded Adana 85% of its costs of the appeal.

COMMENT

The decision gives some helpful guidance on the meaning of "a product" in the context of public/product liability insurance and the application of the Foundation Clause. These terms commonly appear in construction product liability policies.

The decision also highlights the risks of seeking declarations of non-liability on an insurance policy where the underlying liability proceedings are on-going and the facts are uncertain.

Compare jurisdictions: Arbitration

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